The Consumer Protection Act (CPA) doesn't rule auctions

By Auction Alliance 07/06/2011 11:05:00

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Auction Alliance CEO Rael Levitt.

The Consumer Protection Act (CPA) places a large risk on the seller if a property is found to be defective and purchasers are entitled to return the property to the seller within six months after registration of transfer.

"This does not, however, apply to property sold on auction, and this is giving the auction sector a boost," says Auction Alliance CEO Rael Levitt.

According to Levitt, banks and liquidators who were using estate agents and brokers to sell their distressed assets have quickly realised that auctions give them far greater protection and do not open them up to cool-off clauses down the line.

Many developers have gone into liquidation and, invariably, a bankrupt development will have defects.

A distressed seller, a bank or an insolvency practitioner does not have the cash, nor the capacity, to repair these properties after they are sold.

Furthermore, the very nature of these transactions is that they have to be conclusive final sales.

Levitt says: "This is the exact reason why the Department of Trade and Industry recognised auctions as being excluded from the CPA cool-off provisions; assets on auction are still sold 'voetstoots'".

The sector where the "voetstoots" nature of the auction industry is having its largest impact is in the sale of consumable goods, motor vehicles, stock and all movables.

"If a liquidator has to trade out a business and the bankrupt business trades stock in its normal course of business, then the liquidator is opening himself up to enormous risk by delaying the winding up process, should buyers want to return or replace defective goods", says Levitt.

"I believe that liquidators will now quickly close these businesses down and take assets to the auction floor. The days of post liquidation trading are ending as consumers simply have too many rights for normal trading", continues Levitt.

The same applies to motor vehicles, where banks have to sell these vehicles and cannot risk consumers coming back within six months with defective, second-hand motor vehicles.

Often, the very nature of a repossessed car would be that the vehicle has some sort of defect and auctions, with their "voetsoots" clauses, give the bank protection.

According to Levitt, there has been debate as to whether a bank that sells repossessed cars would be defined as a business selling cars in the normal course of its business.

"That definition will determine whether consumers have the right of cooling-off for any assets which are sold by a bank."

He adds that internet auctions also do not have cooling off periods, and are also "voetsoots".

"And so we have also seen internet auctions growing with the implementation of the CPA," Levitt concludes.